There’s often confusion when it comes to understanding the nuances of payment processing, especially in the cannabis industry. The intricate blend of federal and state regulations, coupled with technological considerations, can weave a labyrinth that even the most seasoned industry professional finds hard to navigate.
A case in point: PIN debit payment systems. On the surface, it may seem like a seamless solution. However, those in the know understand the complexity that lurks beneath.
Why is the Cannabis Industry not allowed to use PIN Debit for transactions?
The restrictions around the use of PIN debit in cannabis transactions can be both confusing and frustrating for everyone involved. Dealing with primarily cash transactions might not be ideal from a safety perspective; however, it’s a necessary workaround due to the peculiar dynamics of the cannabis industry and its intersection with the financial system.
One might wonder if organizations such as Treez, Flowhub, and Dutchie that offer cashless PIN debit solutions could potentially solve the problem. Indeed, these cashless solution providers serve as a safer alternative to traditional cash transactions by facilitating payments over the debit network rather than the credit network used by Visa or Mastercard.
On the face of it, this seems like an optimal solution. However, the difficulty deepens when digested from the perspective of compliance with card brand network rules.
Here’s where things get tricky: despite the debit network-centered approach, these cashless ATM and PIN debit solutions are at risk of violating the internal rules established by payment card networks.
Remember, as of now, cannabis is federally illegal, which prompts acquirers to essentially ‘cloak’ their business type by using incorrect merchant category codes. Now, this might keep things running in the short run, but from a legal standpoint, this constitutes a violation.
Next, let’s consider costs for customers. Necessarily, customers are obliged to use their debit cards and input their PINs while the merchant tacks on a fee that typically oscillates between $2.00 and $4.00. This might not sound like a vast sum, but remember, we’re looking at an industry with an average fee of around 12% of the purchase amount. For customers, these numbers toll up rapidly, making for a highly inefficient transaction cost structure.
In essence, the legal intricacies coupled with customer costs and potential compliance risks explain why PIN Debit is not compliant for cannabis payments. A cashless future might be imminent, but for now, the cannabis industry finds itself entangled in a complex web of rules and regulations that must be navigated with extreme caution.
What are the consequences of non-compliance with Cannabis Payment regulations?
Disregarding cannabis payment protocols can have serious ramifications. Because of the federal illegality of cannabis, acquirers often hide their business type using an incorrect Merchant Category Code (MCC). There’s often a tendency to lean toward solutions like cashless ATMs or PIN debit transactions, despite their violations of payment card network internal rules. Herein poses a significant risk to businesses connected with the cannabis industry.
Proceeding with these kinds of transactions presents the jeopardy of using a 16-digit card number for purposes that violate rules, are illegal, or are potentially brand damaging. This circumvention of rules can trigger harsh repercussions ranging from financial penalties to outright banishment from the payment card network. It consequently casts a negative light on the business involved, irreparably damaging its reputation and industry standing.
Aside from these immediate factors, industry players also have to contend with the fast-paced regulatory environment. Keeping up with the constant changes in compliance requirements demands considerable resources to understand, experiment with, and implement new processes. Businesses in this sphere spend a staggering $39 billion annually just on administrative activities related to ensuring regulatory compliance.
What’s more, not adhering to compliance regulations also has implications in the broader realm of human rights. The European Commission has identified risks that could lead to breaches of fundamental rights such as freedom of expression, non-discrimination, protection of personal data, and consumer protection.
If you use a credit card to purchase a Schedule 1 narcotic in any way, shape, or form, it is an illegal transaction.
In summary, non-compliance with cannabis payment regulations is a costly error. It not only impacts the financial bottom line of businesses but can also lead to severe reputational damage and potential breaches of human rights.
What are the alternatives to PIN Debit that are compliant with Cannabis Payments?
While PIN Debit’s incompatibility with cannabis payments leaves players in the industry in a catch-22, there are readily available alternatives that comply with regulations. One of these alternatives is automated clearing house (ACH) payments.
ACH payments are essentially electronic transfers that happen directly between banks. The process allows businesses to accept payments securely while sidestepping the limitations associated with card network rules. The vital aspect of ACH services is the elimination of high transaction costs, resulting in more affordable purchases for cannabis consumers.
One standout provider of ACH services specific to the cannabis industry is Monarch Technologies. Monarch’s platform has made it easier than ever for cannabis dispensaries to accept payments smoothly. It integrates seamlessly into businesses’ existing infrastructure without the risk of breaking any rules associated with card networks.
Moreover, with Monarch’s ACH features, cannabis businesses can better protect themselves against the potential brand damage and legal consequences associated with the federal illegality of cannabis. Not only are these services tailored specifically to their unique needs, but they are also designed to facilitate safe, compliant transactions that respect both the law and consumer interests.
While the industry certainly has its challenges, particularly in this era of COVID-19, cannabis entrepreneurs can take heart in knowing there are reliable alternatives to PIN debit available. These solutions empower them to keep their operations up and running despite the obstacles, championing the cannabis industry’s growth and resilience over time.
Is there any possibility of PIN debit becoming compliant for cannabis payments in the future?
The future of PIN debit in the cannabis industry remains uncertain. However, innovative solutions are consistently being developed to address this pressing issue. As cannabis POS companies such as Treez, Flowhub, and Dutchie are aware of the constraints as well as the potential for this budding industry, they’re continuously developing technology for compliant payment methods.
One cannot ignore the possibility of a future where PIN debit is compliant with cannabis payments. This would require significant shifts in regulatory frameworks, banking practices, and technical implementations, but advancements in technology and changing industry dynamics could pave the way for this possibility.
Given the question at hand, it’s important to remain up-to-date on the evolving regulations and industry advancements in this matter. Understanding the potential consequences of non-compliance and monitoring the development of compliant alternatives to PIN debit can not only safeguard your business but also provide better services to your customers.
Let’s explore a way out. Monarch Technologies offers a myriad of cannabis payment solutions that are not only compliant but also customer-friendly. By converting digital payments into electronic cash, Monarch Technologies offers an innovative and secure way for dispensaries to conduct business efficiently while adhering to the law. Its digital payment platform is designed to reduce transaction costs and enhance the customer experience.
We urge you to take a step beyond conventional practices. Go cashless, go digital. Quit worrying about compliance issues and focus your energy on what you do best: providing high-quality cannabis products to your customers. It’s time to break free from the constraints of traditional payment methods and embrace the future. Visit Monarch Technologies today and explore a future-ready solution tailored specifically for the cannabis industry.